Tuesday, 8 December 2015

China’s development bank has also agreed on a $500 million dollar loan facility for Eskom.

Chinese President Xi Jinping (R) and South African President Jacob Zuma (L) arrive for a meeting after the arrival ceremony of the Chinese President, at the Union Buildings in Pretoria, during the start of his official tour to South Africa on December 2, 2015. Picture: AFP

Zuma says the agreements signed at the Union Buildings this afternoon show that cooperation between the two countries is stronger than ever.

“The volume of agreements indicates the amount of work that has been done in the past few months. We agreed that more could and should be done to increase our trade and investment figures.”

President Xi says relations between China and South African are in the “best shape” ever thanks to continued engagement on growth and investment.

“Our practical cooperation is deepening. People to people, and our cultural exchanges are flourishing. Our cooperation on international affairs is becoming closer. China-South Africa relations are in the best shape ever.”

China’s development bank has also agreed on a $500 million dollar loan facility for Eskom.

Summit discussions are seen centring on whether China will extend new loans despite its own slowing economy, while African nations may push for debt moratoriums and technology transfers.

China says its trade with Africa last year was worth $220 billion last year with investments seen at $32,4 billion , but direct investment has fallen roughly 40 percent in the first half of 2015 to $1,19 billion.

Chinese tourism has also declined, with tour operators attributing $540 million of yearly revenue losses to Home Affairs Minister Malusi Gigaba’s new visa rules.

But on Wednesday, Gigaba said the Ebola virus in Africa was partly to blame for the drop numbers of Chinese tourists visiting South Africa rather than visa requirements.

Chinese influence is broadly seen by Africans as a healthy counterbalance to the West, though Western governments accuse China of turning a blind eye to conflicts and rights abuses as they pursue trade and aid policies there.

The Chinese president had started his Africa tour in Zimbabwe on Tuesday where he witnessed the signing of 10 business agreements, including Beijing providing $1 billion for the country’s largest thermal power plant.

Monday, 6 July 2015

The World Bank has a timely warning for Chinese President Xi Jinping: Don't let all that money go to your head.

The global lender didn't refer directly to Shanghai's stock boom or the Asian Infrastructure Investment Bank (Beijing's attempt to develop a World Bank of its own). Nor did it have to. By urging Beijing to clamp down on wasteful investment, unsustainable debt, and a shadow banking industry run amok, it was delivering a clear enough warning that President Xi should stop fanning China's giant asset bubble. The World Bank was also implying China should get its own economic house in order before trying to change the global economy.

"China has reached a critical phase of its economic and social development path," the lender said in a new report released Wednesday. The economy "will need to be transformed to increase the efficiency of new investments and widen access to finance, enabling China to sustain solid growth and rebalance its economy."

The World Bank's admonishment was amplified by a fascinating milestone the Chinese economy reached this week -- one that presents Xi's government with a complicated image problem. China's 90 mainland stock traders now outnumber its 87.8 million Communist Party members. This changing of the guard, if you will, is taking place the same week the party celebrated its 94th anniversary -- hardly what Mao Zedong had in mind when he led the Communists to power in 1949.

In truth, China's fast-growing legions of stock traders are betting on a type of financial Communism. Everyone knows the Chinese economy is slowing and deflation is approaching, but markets have generally stayed aloft amid perceptions Xi will use the full power of the state to protect investments. Along with weekend interest-rate cuts, authorities have just made it easier to take on even more leverage. Brokerages now have leeway to boost lending by about $300 billion.

Yet recent stock market declines suggest those steps aren't working their usual magic. Part of the problem is traders have realized nobody is shoring up the shaky pillars of the world's second-biggest economy. As that awareness sinks in, the 24 percent decline in the Shanghai Composite Index from its June 12 peak (which wiped out more than the equivalent of Brazil's annual output) will only intensify. So will the headwinds bearing down on the broader economy as plunging shares dent business and household confidence.

And that will mean China will have less money available to pursue its global aspirations, including through its new infrastructure bank. In that sense, the World Bank is right to suggest the best way for Beijing to achieve its international goals is to shore up its domestic economy.

That means overhauling a banking system that subsidizes state-owned enterprises at the expense of entrepreneurs and savers. Virtually all of China's worst economic excesses emanate from its corrupt alliance of top financiers, regulators, executives and their benefactors in the government. Curbing government interference in credit allocation would be the first step to reducing the imbalances the World Bank says could "deflect" China's "economic trajectory."

But for all his talk about trusting market forces, Xi has made only modest moves to make more credit available to the private sector and loosen controls on interest rates. Meanwhile, his government has been tossing more fuel at the Shanghai and Shenzhen stock markets by loosening margin financing. Far from being chastened, mainland traders can now buy even more stocks with even greater leverage in an already wildly overleveraged system. The World Bank will no doubt continue telling Chinese officials why that strategy is a mistake. But, to the detriment of the country's economy, it can't make them listen.

The BRICS Development Bank has been launched. The Asian Infrastructure Investment Bank is taking off. Where is Nigeria?

As a slate of long-term projections suggest, Nigeria’s huge economic potential requires huge determination.When Muhammadu Buhari took over from Goodluck Jonathan, he ran on a platform of security and zero patience to corruption. Those are the preconditions for the creation of prosperity and growth.

The best way to unleash Nigeria’s potential for agricultural modernization, industrialization and urbanization is investment into infrastructure, however. That ensures productivity, growth and jobs.

A year ago, the large BRICS economies launched the New Development Bank. Now the China-proposed Asian Infrastructure Investment Bank (AIIB) is a reality as well. In the former case, South Africa has played a central role. In the latter case, African economies have not yet come forward.

Today, Nigeria is the largest economy of Africa. The emerging-economy development banks could contribute to the realization of the Nigerian dream. What is Abuja waiting for?

The New Development Bank

For years, China, along with other large emerging economies, had grown exasperated with the slow pace of reforms in the international multilateral financial institutions, such as the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB).

In the advanced economies, these institutions are seen as international. In the emerging world, they are perceived as dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationality of their leaders.

After hollow promises, the BRICS leaders agreed to launch a new development bank at the 5th BRICS summit in Durban, South Africa in March 2013. About a year later, they established the $100 billion New Development Bank and a reserve currency pool worth another $100 billion.

While Shanghai was selected as the bank’s headquarters, an African regional center would be established in Johannesburg.

The BRICS Bank will focus mainly on infrastructure projects, with authorized lending of up to $34 billion annually. As the U.S. Federal Reserve is expected to hike rates in the fall, the bank will also provide assistance to countries suffering from the anticipated economic volatility.

In addition to current BRICS members, the Tsipras government of Greece has explored the possibility of joining the New Development Bank.

The current members include East Asia’s largest emerging economy (China), its counterpart in South Asia (India), Eurasia (Russia) and Latin America (Brazil) but not in Africa. Instead of Nigeria, South Africa has the central role in the bank.

The Asian Infrastructure Investment Bank

The Asian Infrastructure Investment Bank (AIIB) was formally launched on June 29. Put forward by Chinese leaders in October 2013, the initiative has moved ahead very rapidly.

In June 2014, China proposed doubling the registered capital of the bank from $50 billion to $100 billion, with half from Beijing and the rest from the other founding members.

Despite pressure, US allies in Southeast Asia joined the AIIB. Following India’s footprints, so did the rest of the South Asia, Australia and New Zealand. What changed the game was the UK’s participation, as the “first major Western country.” Afterwards, other EU core economies – Germany, France, and Italy – followed in the footprints. So did much of the Middle East and Latin America.

In Asia, the AIIB means an urgent international response to a massive economic need. Internationally, it translates to the opportunity of other nations to participate in Asia’s growth momentum.

The ADB has less than $80 billion in capital, while the World Bank’s member states have subscribed to $223 billion of subscribed capital. In practice, the latter can loan some $50 billion per year. While such sums sound impressive, they are very far from what is needed. According to ADB, Asia’s economic development needs total at $8 trillion in 2010-20.

In addition to the 57 original founding member countries, a dozen new countries have applied to join the AIIB.

For now, the membership list does not include sub-Saharan African nations – not to speak of the continent’s largest economy, Nigeria.

The African Development Bank

Some observers argue that African nations should focus their energies on the African Development Bank Group (AfDB).

Since its creation in 1964, the AfDB has had an important role in African development. Through its three arms – the African Development Bank, the African Development Fund and the Nigeria Trust Fund – the AfDB has mobilized African unity behind worthwhile initiatives.

Ostensibly, the World Bank, the IMF and the ADB work for the international economy. In practice, they are led by US, European and Japanese interests.

What about Africa’s regional bank? In 2014, sub-Saharan African nations controlled 25 percent of voting powers at the African Development Bank. In contrast, G7 nations had more than 50 percent of the total. Control matters.

The established international multilateral institutions were created by and reflect the terms of the major advanced economies. Neither the New Development Bank nor the AIIB can or seek to replace them. Instead, the two represent the first multilateral banks that were created by and reflect the terms of the large emerging economies.

Nor do these two seek to be exclusive and restrictive. They have opened doors to advanced economies as well.

Growth through infrastructure investments

The New Development Bank and the AIIB are dedicated to infrastructure initiatives in emerging and developing economies, particularly but not exclusively in emerging Asia.

Thanks to regional and trans-regional initiatives, both banks will also play a major global role.

The question is, why did Nigeria not take a more proactive role in these bank initiatives in the Jonathan era? And how should Nigeria participate in such opportunities in the Buhari era?

Infrastructure investments are critical to Nigeria’s growth. Time is a luxury Abuja does not have.

Russian President Vladimir Putin has signed a law ratifying the deal establishing the BRICS New Development Bank (NDB), according to a document published on Monday on Russia's official website for legal information.

The BRICS New Development Bank (NDB) was set up to challenge two major Western-led giants – the World Bank and the International Monetary Fund. NDB's key role will be to serve as a pool of currency for infrastructure projects within a group of five countries with major emerging national economies - Russia, Brazil, India, China and South Africa.

According to the Russian Finance Ministry, the New Development Bank is expected to start functioning fully by the end of the year, with the headquarters slated for opening in Shanghai. The chairmanship, with a term of five years, will rotate among the members.

It's hoped the new bank will stamp the growing influence of the BRICS. The NDB is expected to become one of the world's key institutions, with a stated capital of $100 billion. Each of the five-member countries is expected to allocate an equal share of the $50 billion startup capital that will be expanded to $100 billion. Russia has agreed to provide $2 billion from the federal budget for the bank over the next seven years.

The bank, which will be able to start lending in 2016, will be open to other countries that are members of the United Nations. The BRICS share is never to decline below 55 percent, however. The money will be used to finance development projects in the emerging economies.

India will serve as the first five-year rotating president, and the first Chairman of the Board of Directors will be Brazilian.

The bank was first proposed in 2012. The signing of the agreement to create the joint development bank by the heads of the five countries took place at the BRICS summit in Fortaleza, Brazil, in June 2014.

The lower chamber of the Russian parliament, the State Duma, ratified the agreement on the NDB establishment last month.

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